European Markets Shrugged Off Spanish Downgrade And Finished Higher

4/27/2012 12:01 PM ET

The European markets largely closed to the upside on Friday, despite a downgrade of Spain's credit rating. The weaker than expected U.S. GDP result caused a slight dip in the markets in the afternoon, which they also managed to recover from. The strong performance by bank stocks contributed to the markets' resiliency.

Standard and Poor's downgraded Spanish credit ratings by two notches on Thursday saying that it expects further deterioration of the country's public finances amid economic contraction and the need to support banks. S&P said it is lowering the euro member's long-term and short-term sovereign credit ratings to 'BBB+/A-2' from 'A/A-1'. The outlook on the ratings is 'negative'.

Italy's 10-year borrowing costs increased at an auction on Friday, which increased concerns that the country may seek a bailout. The Italian Treasury raised EUR 5.95 billion from the sale of bonds or BTPs with a total target of EUR 6.25 billion. The agency placed EUR 2.5 billion 5.50 percent September 2022 bond at a yield of 5.84 percent, up from 5.24 percent in the previous sale on March 29.

The Euro Stoxx 50 index of eurozone bluechip stocks increased by 0.77 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, rose by 0.43 percent.

The CAC 40 of France closed higher by 1.14 percent and the DAX of German gained 0.91 percent. The FTSE 100 of the U.K. finished up by 0.39 percent, but the SMI of Switzerland fell by 0.10 percent.

In Frankfurt, Daimler declined by 1.64 percent. The company posted a 20 percent increase in first-quarter profit, citing ongoing growth in unit sales at Mercedes-Benz Cars and Daimler Trucks divisions.

Software AG climbed by 6.44 percent. The company kept its full-year sales forecast unchanged even after first-quarter profit declined on lower revenues.

Basf fell by 0.55 percent, after the chemical giant reported a decline in first-quarter profit on lower margins.

German consumer sentiment is set to deteriorate next month as income expectations and the willingness to buy durables deteriorated on high fuel prices, a survey by the market research group GfK showed Friday. The forward-looking consumer confidence index dropped to 5.6 for May from a revised value of 5.8 in April. Economists had expected the index to remain stable in May at April's originally reported reading of 5.9.

A leading indicator of the Eurozone economy declined in March, after rising for two consecutive months, data from a survey by the Conference Board showed Friday. The leading economic index decreased 0.3 percent month-on-month to 105 in March. In February and January, the index moved up by 0.8 percent and 1 percent respectively.

The rate of growth of the U.S. economy slowed more than expected in the first quarter of 2012, according to figures released by the Commerce Department on Friday. The initial estimate of first quarter GDP showed a 2.2 percent growth rate, down from the 3 percent growth seen in the final quarter of 2011. While most economists had expected the rate of growth to slow compared to the fourth quarter, many forecast a somewhat stronger 2.5 percent growth rate.

U.S. consumer sentiment in the month of April showed an unexpected improvement compared to the previous month, according to revised data released by Reuters and the University of Michigan on Friday. The report showed that the consumer sentiment index for April came in at 76.4 compared to the mid-month reading of 75.7. Economists had been expecting a much more modest upward revision to a reading of 75.8.